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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
Knowing the difference between a ULIP vs term insurance scheme can help you understand just which one of the two would be more suitable to you. In case of ULIPs, you will get the combination of investment and life cover under a single scheme. Whereas, term insurance simply gives your family financial support when you are no longer there to take care of them.
Unit Linked Insurance Plan is known as ULIP. It is a life insurance product where insurance cover and investment opportunities come hand in hand. In case of a ULIP, a margin of your premium is used to offer a life insurance cover. Meanwhile, the rest of the amount is allocated to other investment funds, equity or debt, or a blend of the two, depending on the amount of risk you want to take and on the end objectives of your financial planning. The performance of the investment funds directly influences your ULIP’s value, giving rise to the possibility of both risk and reward. ULIPs allow policyholders to switch between different investment funds based on market conditions or changing financial objectives.
Unlike other life insurance policies, ULIPs or Unit Linked Insurance Plans (ULIPs) offer a mix of investment and insurance. But there are also several other features that make them unique compared to traditional life insurance policies. Some key features of ULIPs include:
ULIPs offer life cover. That means if something unfortunate happens to you during the term of the policy, your family (nominees) will get a lump sum amount. It is like a financial safety cushion to protect your family and loved ones when they need it most.
So when you make a premium payment for a ULIP, a portion of it goes toward life insurance, and the other part gets invested in the market. This investment can grow over time depending on how the market performs. This way you are getting both, protection as well as a chance to build wealth.
ULIPs also let you choose how you wish your money to be invested. You can pick from different types of funds like equity (stock market), debt (less risky, fixed income), or a mix of both (balanced funds). You can decide based on how comfortable you feel with taking risks.
These plans are super flexible. With ULIPs, you can decide how you want to pay your premiums: weekly, monthly or yearly. Pretty convenient, right? Plus, if you feel like your investment is not doing well, you can even switch your money from one fund to another. This way you can adapt your plan as your goals change with time.
ULIPs provide transparency in terms of charges, allowing you to understand the various charges associated with the policy, such as premium allocation charges, fund management charges, and policy administration charges.
These plans also let you make partial withdrawals from your policy fund value after the completion of a specified lock-in period, providing liquidity in case of financial emergencies.
Now comes one of the best features of this plan, tax benefits! The premium you pay in a ULIP can be claimed as a deduction under Section 80C of the Income Tax Act. Plus, the maturity amount is also tax free under Section 10(10D), subject to certain conditions.
Term insurance is a life insurance that covers you for a fixed number of years called the “term”. If something happens to you during that term and you pass away, the policy offers your family a lump sum amount. This money can help them manage their daily expenses and maintain their lifestyle, even if you are not around.
These are simple, no-hassle life insurance plans where you pay fixed premiums every year for a specific number of years. However, note that if you stay safe and healthy till the end of the term, there’s no money back because it’s a pure protection plan.
If you want to buy a term insurance plan, you should take a look at the features of this excellent plan:
A term insurance plan provides a lump-sum payout to your nominee (usually your family) in case something unfortunate happens to you during the policy period. This amount helps your loved ones manage their daily expenses, repay debts, or fund long-term needs like education or rent.
Various insurers offer maturity benefits under the Return of Premium (ROP) option as well to make the product flexible. This means if you outlive the policy, the total premiums you paid are returned, making it a non-loss deal. This option makes term insurance more flexible for people who want something back, even if they do not make a claim.
One of the biggest advantages of term insurance is that it offers high coverage at very low premiums, especially when purchased at a young age. Plus, premiums stay fixed throughout the policy term, so there are no surprises later.
The premium paid towards the term insurance plan can be claimed for tax deductions. Also, the death benefit received by the nominee is tax-free under Section 10(10D), making it a smart option for tax planning as well as protection.
Before deciding which plan to buy, you should know the difference between ULIP vs term insurance plans. Here is a comparison between term insurance vs ULIP:
| Aspect | ULIP | Term Insurance |
|---|---|---|
| Type of Plan | Investment-cum-insurance | Pure life insurance |
| Suitable For | Individuals seeking both insurance and investment benefits | Individuals seeking pure life cover for a specific period |
| Investment | Offers investment in equity, debt, or hybrid funds | No investment component |
| Premium Amounts | Generally higher due to insurance and investment components | Lower premiums for the same coverage |
| Insurance Coverage | Combines life insurance coverage with investment benefits | Provides pure life insurance coverage for a specified term |
| Potential Returns | Market-linked returns based on fund performance | No investment returns |
| Cost Efficiency | Can be costlier due to charges and fees associated with investments | Cost-effective in terms of premiums |
| Associated Charges | Includes premium allocation charges, fund management charges, etc. | Typically, no investment-related charges |
| Ideal Time to Buy | Suitable for long-term financial planning and wealth accumulation | Ideal for individuals with temporary financial responsibilities |
| Lock-in Period | Usually has a lock-in period ranging from 5 to 10 years | No lock-in period, policy can be terminated anytime |
| Financial Protection | Provides financial protection along with potential wealth accumulation | Offers financial protection for a specified period |
| Maturity Benefits | Maturity benefits include the fund value at the end of the policy term | No maturity benefits, as it’s pure insurance cover |
| Tax Benefits | Offers tax benefits on premiums paid and maturity proceeds, subject to conditions | Tax benefits on premiums paid, subject to conditions |
| Switching Options | Allows switching between different investment funds based on market conditions | No switching options available |
| Policy Duration | Can have flexible policy durations, often long-term | Typically offers coverage for a specific term |
| Investment Returns | Offers potential for higher investment returns based on market performance | No investment returns |
| Wealth Creation | Can contribute to wealth creation over the long term through market-linked returns | Does not contribute to wealth creation directly |
Both ULIPs and term insurance serve different financial purposes. A ULIP (Unit Linked Insurance Plan) provides you with a combination of life insurance plus investment. It helps you grow your money while also protecting your family. In contrast, a term plan gives you pure life coverage without any investment returns.
Now, ULIP or term plan which is better? This entirely depends on your personal goals.
So ultimately, the answer depends on your overall goal. Go for a ULIP if you want growth + protection, and choose a term plan if you want simple, low-cost life cover.
When you have been considering which is better a term plan vs ULIP, keep in mind that there is no single plan that will suit everyone. These two are both good depending on what you are after.
ULIP provides you with an insurance cover, as well as, an investment opportunity. It is flexible, transparent, and linked to market returns. On the other hand, term insurance is simple and affordable. It is a life insurance plan that offers pure protection, making sure your dear ones are taken care of if something happens to you.
Therefore, you need to take your time, consider what you want to achieve and then make the best choice that suits your life.
1
No, they are not the same. A ULIP (Unit Linked Insurance Plan) is like a 2-in-1 product. It gives you life insurance and also invests part of your money in funds like stocks or bonds. On the other hand, term insurance is simple as it only gives life cover. So, if something happens to you, your family gets a payout, but there’s no investment or returns involved.
2
The main difference is this: ULIP protects your life and also grows your money through investments. Meanwhile, term insurance is a simple life cover that only helps your family financially if something happens to you, but doesn’t grow your savings.
3
A ULIP is better suited for long-term goals like buying a home or saving up for your child’s education. This is because it grows your money with time through investments, and also provides life cover. But it really depends on your comfort level with risk taking, because investments go up and down. Term insurance, in comparison, will not help your money grow. It is mainly to secure your family’s future.
4
Term insurance is generally more affordable than ULIPs. You get high life cover for a much lower price because you’re only paying for insurance, not investments, ULIPs are more costly as they offer both, life cover and investment. So if you only want to secure your family, term insurance is the budget-friendly choice.
5
Not necessarily better, it is just different. ULIPs give you insurance and investment in a single plan. Mutual funds are focused on growing your money without any life cover. ULIPs also give tax benefits, which mutual funds don’t always do. So if you seek both investment and insurance in a plan, go for ULIP. But if you only want to invest and grow your savings, opt for mutual funds.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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